Bad Debt Expense in 1Q/2009I think they cut off "Non-Paying-Insurco" ("NPI") almost immediately after the Jan 12, 2009 press release. I calculate that the workdays from Jan 2 until Jan 16 would explain the $548 thousand of revenue done at normal run rates by NPI and would have to be provided for in bad debt expense. (See my calculation below.) They could not reserve for that in the 2008 financial statements because the revenue was recorded in fiscal 2009.
Yes, there may be some business related to work done for Partner-Surgeons which is not supposed to be disputed but which NPI is also not paying, as disclosed in the conference call.
Dates: I assume the Board was informed on Fri. Jan 9th and they approved the cut-off of NPI work, the suspension of the dividend and the wording of the press release disclosure. OSC disclosure rules requires immediate disclosure for events material to the stock price. They announced Mon Jan 12th. I suspect they stopped scheduling new operations covered by NPI on Mon Jan 12 but allowed operations already scheduled to proceed. To phone a patient the morning of his operation to cancel would upset both the patient and the doctor. So I picked Friday Jan 16 as the cutoff for operations already scheduled. There are 11 working days from Jan 2 to Jan 16, which is 17% of 1Q normal revenue.
FYI: The split between Palladium and Kirby revenue is disclosed on page 6 of the 2008 AIF. Palladium is 63% of full-year 2008 revenue. Bad debts in 2008 were $5.735 million, split almost equally between 4Q and prior. It looks to me like NPI stopped paying on July 1/2008. Double it to a full-year rate says NPI represents $11.5M of revenue annually in Palladium or $2.9M per quarter
1Q/2009 Bad Debt Calculation: NPI $2.9M per quarter business-as-usual revenue x 17% (Jan 2 to Jan16) = $493 thousand NPI revenue that would be recorded before their scheduled operations dried up on Jan 16. Close enough to the $548 thousand bad debt expense to suggest that explains it.
Sorry for the long post.